Earnings Call Transcript - DSX Q4 2023

Operator, Operator

Hello, and welcome to the Diana Shipping Inc. 2023 Fourth Quarter and Year-End Conference Call and Webcast. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Ed Nebb, Investor Relations for Diana Shipping. Please go ahead, Ed.

Ed Nebb, Investor Relations

Thank you, Kevin, and thanks to everyone who is joining us today for the Diana Shipping Inc. 2023 fourth quarter and full year conference call. With us today from management are Semiramis Paliou, Chief Executive Officer, and she will introduce the other members of the management team. And so without further ado, I will turn the call over to Ms. Paliou.

Semiramis Paliou, CEO

Thank you, Ed. Good morning, ladies and gentlemen, and welcome to Diana Shipping Inc.'s Fourth Quarter and Year-End 2023 Financial Results Conference Call. As Ed said, I'm Semiramis Paliou, the CEO of the company. And it's my pleasure to present alongside our esteemed team, Mr. Stasi Margaronis, who is the Director and President; Mr. Ioannis Zafirakis, Director, CFO and Chief Strategy Officer; Mr. Eleftherios Papatrifon, Director. Before we begin, I'd like to remind everyone to review the forward-looking statement on Page 4 of the accompanying presentation. Despite market conditions being mixed during the last quarter of 2023 and early 2024, our disciplined chartering strategy has allowed us to continue generating positive free cash flows. In February, we witnessed the market sentiment improving significantly. As a result, current market conditions are more robust. In this context, we announced a cash dividend for the fourth quarter of 2023 of $0.075 per share. Turning to Slide 5, I will review the company's snapshot as of today. Our fleet comprises 41 vessels in the water with a total deadweight of approximately 4.5 million tons. Our fleet utilization has remained consistently high, reaching 99.7% for the fiscal year 2023, attributed to our prudent and efficient management of our vessels. Additionally, as of the end of the fourth quarter, we employed 1,018 people at sea and onshore. Moving on to Slide 6, let's go over the key highlights from the third quarter and recent developments. We executed the contract for the acquisition of two methanol dual-fuel newbuilding Kamsarmax dry bulk vessels built at Tsuneishi Group for a purchase price of $46 million each. These vessels are expected to be delivered to the company in the second half of 2027 and the first half of 2028. This investment, totaling $92 million, was showcased at the Business & Philanthropy Climate Forum during COP28 in Dubai. This presentation highlighted our commitment to reducing the environmental impact of our fleet, demonstrating our dedication to sustainable practices and initiatives. We take our role as an industry leader very seriously, continually striving to enhance our fleet and operations for the benefit of our stakeholders and the environment. Furthermore, our joint venture entity, Windward Offshore, has increased its investment from two to four high-spec commissioning service operation vessels to be built at VARD Yard as a result of exercising its option to construct two additional vessels. Our continued participation in this venture reflects our commitment to a greener and more sustainable shipping industry. These investments underscore our dedication to sustainable shipping and position us to meet the evolving demand of our industry while reducing our carbon footprint. Moreover, we sold two vessels to unaffiliated third parties, Motor vessel Artemis for approximately $13 million and Motor vessel Houston for approximately $23.3 million. Before the end of the year, the company released its fourth ESG report for 2022, which can be found on our website. On November 20, 2023, we announced a pro rata distribution of warrants to holders of the company's common stock, of which as of February 16, 2024, 1,940,736 were exercised. The warrant distribution provided us with an opportunity to potentially raise equity in a non-dilutive manner for our existing shareholders. As of February 19, 2024, the company has secured revenue for 62% of the remaining ownership days of 2024, amounting to approximately $123.3 million of contracted revenues. Additionally, we have secured approximately $31 million of contracted revenue for 2025, representing 12% of the available ownership days for the entire year. Ioannis will provide a more detailed analysis of our cash flow generation potential based on the current market environment. We are pleased to declare a quarterly cash dividend of $0.075 per common share, totaling approximately $8.7 million. Finally, we are proud to announce that our company was honored with the prestigious Dry Cargo Company of the Year Award at the 2023 Lloyd’s List Greek Shipping Awards. This recognition is a testament to the hard work, dedication, and excellence of our team. Moving on to Slide 7, let's review a summary of our recent chartering activity. We have continued to implement our disciplined strategy by securing profitable time charters for eight vessels since our last earnings presentation in November 2023. To provide some detail, we have chartered three Ultramax vessels with a weighted average daily rate of $13,950 a day for a remaining average period of 401 days. Additionally, three Panamax/Kamsarmax/Post-Panamax vessels have been chartered at a weighted average daily rate of $15,631 a day for a remaining average period of 365 days. Lastly, two Capesize/Newcastlemax vessels have been chartered with a weighted average daily rate of $21,043 per day and a remaining average period of 486 days. Slide 8 illustrates our commitment to strategically charter our vessels in a staggered manner. Our emphasis is on securing positive free cash flow through our disciplined employment strategy and positioning ourselves in a balanced way to efficiently participate in the market. I will now pass the floor to Ioannis to provide a detailed analysis of our financials.

Ioannis Zafirakis, CFO and Chief Strategy Officer

Thank you, Semiramis. Slide number 9 clearly shows two main points. One is that market conditions deteriorated for the fourth quarter of 2023 compared to 2022, with revenue being $60 million compared to $75 million in 2022 for the same quarter. However, we have managed to increase our cash position at the end of the year to $161 million compared to $143.9 million. We have also managed to decrease our long-term and finance liabilities, net of deferred financing costs, to $642.8 million from $663.4 million, regardless of the market conditions. If we move to the next slide, you can see the time charter equivalent rate for the three months ended December 31. Our time charter equivalent has been $15,162 compared to $21,100 in the same quarter last year, primarily due to the deteriorating market conditions. Moving to the next slide, it’s worth mentioning that our improved utilization rate is 99.7% compared to 98.9% for the same quarter in 2022. Additionally, the time charter equivalent for the year has been $16,700 compared to $22,700 in the previous year. The daily vessel operating expenses have increased slightly to $5,700 compared to $5,574. Importantly, we have managed to keep our weighted average age to 10.5 years, although it has increased from 10.2 years. Reviewing the income statement, we earned $0.06 in the last quarter of 2023 compared to $0.27 in the same quarter of the previous year. This decline is primarily due to different market conditions. For the year-end income statement, we made $0.42 on a diluted basis, compared to $1.36 in the previous year, again reflecting the same reasoning. On the balance sheet, our cash and cash equivalents, including restricted cash and time deposits, are at $161 million compared to $143 million, showcasing our prudent balance sheet management. Total debt stands at $642 million, with net debt approximately at $488 million, which we consider to be very healthy. Moving to the next slide, we have no maturities in 2024 or 2025, with a bond expiring in 2026 worth $119 million. We believe we have managed our maturities well, which gives us the opportunity to improve our debt amortization profile over the next few years. The breakeven cost for free cash flow is calculated at approximately $15,800, and the average daily time charter rate of the fixed revenues for 2024 is projected at $16,232 for 62% of the days. In 2025, we are fixed at $19,105 per day for 12% of our fleet days. Moving to Slide 18, based on February 19, 2024, we anticipate a free cash flow of around $7 million for 2024 and $11 million for 2025. The market has moved a lot since February 19, and these numbers may be slightly conservative at this point. I will now pass the floor to Stasi Margaronis for further market review.

Stasi Margaronis, Director and President

Thank you, Ioannis. I also want to warmly welcome all participants to Diana's first earnings call for 2024. From our last conference call, we brought to your attention that geopolitical events continue to significantly influence dry bulk earnings. According to Clarksons, Suez Canal transits are running about 40% below those seen during the first half of December last year. This decline stems from several owners and operators, including ourselves, avoiding the area due to increased risks of attacks and potential risks to seafarers' lives. This decrease in Suez Canal transit has resulted in a marginal increase in the dry bulk rate average haul length by approximately 1%. Clarksons' forecast assumes one quarter of disruption, factoring in a 0.3% dry bulk tonne mile demand uplift for the full year of 2024. This situation coincides with Panama Canal restrictions due to draft limitations in Lake Gatun, where water levels are critically low at under 25 meters. This is driving some trade towards longer alternative routes. Moving to time charter rates, we are currently witnessing Capesize 12-month employment hire rates at around $26,500 per day, with a recent peak of $30,000 per day noted in March 2022. Today's 12-month rate for Kamsarmax is $18,250 per day, down from around $29,500 in March 2022. For Ultramaxes, the 12-month time charter hire rate stands at $17,000 per day, compared to a peak of $29,250 in March 2022. Notably, these rates are higher than those reported three months ago during our last earnings call. Regarding macroeconomic considerations, the IMF's GDP growth forecast for 2024 provides a reasonably optimistic outlook with an expected growth of 3.1% this year and 3.2% in 2025. China is projected to see a 4.6% growth this year and 4.1% next, while India is expected to grow by 6.5% in both years. The US may grow by 2.1% in 2024 and 1.7% in 2025, with the euro area's growth forecast remaining low at 0.9% this year and 1.75% in 2025. On a positive note, industrial production has returned to growth in several major economies, excluding Japan, and even the euro area is beginning to see positive monthly growth in industrial production. Looking at supply and demand, Clarksons' projections suggest that bulk carrier demand will grow by about 1.6% in 2024, but this may fall short of the expected net fleet growth of 2.3%. However, several factors could support rates, including slower speeds and ESD retrofit time for environmentally sound technologies. A strong demand-supply ratio observed in 2023 indicates little surplus tonnage, providing a stronger base for 2024. Looking ahead to 2025, dry bulk trade is projected to grow modestly by 1.6% in ton miles, with fleet growth anticipated to be just 1% next year. Moving to demand, according to World Steel, global steel production has increased over the last 12 months by 1.2% to 1.85 billion tons. The last seven months have seen an increase of 15.8 million tons in steel production outside of China year-on-year. In China, steel production increased by 8% recently on a year-on-year basis. Seaborne iron ore trade is projected to decline slightly in 2024 and remain steady in 2025. Meanwhile, seaborne coking coal trade is expected to rise by about 3% in 2024 and about 1% in 2025. Conversely, thermal coal trade is expected to contract by 2% this year and by a further 1% in 2025. Grain exports are expected to grow by 2% in 2024 and continue to expand by 5% in 2025. Minor bulk trade is anticipated to grow by 3% in 2024 and the same again in 2025, supported by potential macroeconomic improvement. On the supply side, about 21% of the Handymax fleet is older than 15 years, 25% of the Panamax fleet falls into that category, while only 15% of the Capesize fleet is older than 15 years. Scrapping in 2023 amounted to about 5.4 million deadweight tons. Asset values have also increased, with the secondhand price index rising by 11% in 2023 due to an active market. Looking toward the future, Clarksons remains bullish for the dry bulk market, supporting our business strategy. I will now pass the call back to Semiramis Paliou for a summary of the company's priorities and future goals.

Semiramis Paliou, CEO

Thank you, Stasi. Before we open the call up to the question-and-answer session, I would like to summarize the key points from today's presentation. Firstly, our dedication lies in generating and securing positive free cash flows. Through prudent and active management of our balance sheet, we aim to capitalize on the opportunities presented. Secondly, we are proactive in renewing and modernizing our fleet, enhancing our ecological footprint with greener investments while aligning with our sustainability and environmental responsibility. Lastly, we remain committed to adhering to a strategy that offers stability in a cyclical business while striving to maximize long-term shareholder value. Thank you very much. We can now turn the call back to our operator for the Q&A session.

Operator, Operator

Our first question today is coming from Kristoffer Skeie from Arctic Securities. Your line is now live.

Kristoffer Skeie, Analyst

Hello. Congrats on another good quarter. I was just wondering if you could comment on the balance sheet and investments in equity securities of $20.7 million as of year-end? Is that related to this offshore joint venture or…? Yeah, thanks.

Ioannis Zafirakis, CFO and Chief Strategy Officer

This is an investment that we have. We do not have to disclose the details of that investment. It's not material enough that we need to do a filing, so unfortunately, we cannot disclose.

Operator, Operator

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Semiramis Paliou, CEO

Thank you very much for joining us today, and we look forward to seeing you at our next earnings call. Thank you very much.

Operator, Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.